Aleady Diversifed Options1

8/12/2019 Aleady Diversifed Options1

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A collection of businesses under one corporate

umbrella.


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Strategy Option for a company that is

Already Diversified

Strategy Option for

a company that is

Already Diversified


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New Acquisition

A corporate action in which a company buys most, if not all, of the target

company's ownership stakes in order to assume control of the target firm.

Acquisitions are often made as part of a company's growth strategy

whereby it is more beneficial to take over an existing firm's operations and

niche compared to expanding on its own.

Acquisitions are often paid in cash, the acquiring company's stock or a

combination of both


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New Acquisition

Unrelated

Diversification


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MARICO

Over the past 20 years, Marico has been continually

improvising and building new brands. Marico's Consumer Products Business houses well-

known brands such as occupy leadership positions inmost categories- Coconut Oil, Hair Oils, Post washhair care, Anti-lice Treatment, Premium RefinedEdible Oils, niche Fabric Care etc.

Parachute

Saffola

Hair & Care

Nihar Mediker

Revive


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MARICO

With the acquisition of the erstwhile personal

care business from Reckitt Benckiser,

Marico now owns popular brands like Set

Wet, Livon, Zatak, and other personal care

brands thereby strengthening its portfolio for

the youth and creating a significant presence

in the male grooming and post hair washsegments.


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Reliance Infotel Acquisition

Reliance Industries, in 2010, through its acquisition of Himachal Futuristic

Communications, Infotel signaled its entry into the mobile broadband

telecommunications industry.

For `4,800 crore Reliance Industries acquired a

95% stake in Infotel.

RIL paid an additional `12,848 crore as license fee for a

20 MHz spectrum across 22 telecom circles.

This bold, strategic investment gave RIL, through the new entity

Reliance Infotel, a pan-India presence in the telecom sector.


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Divest or divestiture

Plan whereby a product line or a product division of a business

is liquidated or sold so as to

limit either real or anticipated losses

and to redirect the resource

behind that product line or divisionto other company products or

divisions.

Reasons for Divestment:

1. New business line might not match with core business activity

2. To obtain funds3. To obtain stability

4. Not being competitive enough


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Example:- Tata Steel

Tata Steel had taken the services of 3international consultants namely McKinsey & Co,Arthur D Little and Booz Allen & Hamilton to

enable it to become it globally competitive. It sold of its cements division, had VRS &

modernised its plants and thereafter became thelowest cost producer of steel in the world.


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New business line might not match with core business activity and to obtain fund:

Kishore Biyani-led Future Group is planning stake sale inFuture Supply Chain and Staples Future Office Products.

The group got projected consolidated Debt of Rs 6,000crore and it is planning stake sale in Future GeneraliInsurance, which is a joint venture (JV) with Italianinsurer Generali Group.

Pantaloon Retail Joint Managing Director Rakesh Biyanisaid, We are looking at opportunities to raise money byselling stakes in non-core retail businesses.



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PEPSICO

DIVESTED ITS RESTAURANT GROUP OF

BUSINESS (KFC, PIZZA HUT, TACO BELL)

TO CONCENTRATE ON SOFT DRINKS BUSINESS

WITH COCO-COLA AS THE STRONG

COMPETITOR


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To obtain stability

It divested its chip division called NXP because the chip

market was so volatile and unpredictable

that NXP was responsible for the majority of

Philips's stock fluctuations while it represented only

a very small part of Philips NV.


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DIVESTMENT WITH A CAUtION NOTE

When the parent decides to sell a business,

the problem becomes finding a buyer.

A company selling a business should not ask,

How can we make the most of it and get a

buyer?

But instead it should ask , for which

companies it could be a good fit?.


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Leveraged buyout

L.B. involves selling the business to managers

who have been running it/other outside

investor partners for a minimal equity down

payment and loaning the balance of thepurchase price to the new owners.

Objective of LBO- to allow companies to make

large acqusitions without having to commit alot of capital.


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Corporate restructuring is the process of redesigning one or more aspects ofa company.

The process of reorganizing a company may be implemented due to a

number of different factors, such as positioning the company to be morecompetitive, survive a currently adverse economic climate, or poisethe corporation to move in an entirely new direction

Restructuring a corporate entity is often a necessity when the company hasgrown to the point that the original structure can no longer efficiently manage

the output and general interests of the company.

Corporate restructuring


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Three ways for corporate restructuring:

1. Merger

2. Demerger3. Reduction of capital

Modes of Corporate Restructuring


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The Boards of Directors of Hindalco Industries Limited(Hindalco) and Indo GulfCorporation Limited (IGCL), intheir respective meetings have approved the restructuringproposal on the consolidation of the copper business of IGCL

with Hindalco and the demerger of its urea fertiliser businessas an independent entity.

The scheme of arrangement, valuation report and shareentitlement ratio has also met with Boards approval.

This landmark restructuring, valued at around Rs. 7,000 crores

(US$ 1.4 billion), is one of the largest of its kind in India.

Example


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Multinational companies do not need to be large,but can be small businesses that operate inseveral countries at the same time. Because of

the variety of types of multinational companies,which differ in industry, size and other elements,not all multinational companies engage in thesame business strategies.

Insourcing and purchasing foreign competitionare two strategies commonly used bymultinational companies of all types.

Diversification by Diversified MNCs


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1. Insourcing

Insourcing takes place when a multinational company moves acertain business practice or set of practices to another country.

Instead of contracting with another company in a foreign country,

as in outsourcing situations, the company keeps the businessactivity within the company.

The company either uses an established subsidiary in anothercountry, or sets up a subsidiary in a specific country. The othercountry must present certain advantages for the company toparticipate in these certain business practices there and not in the

multinational company's home country.


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2.Purchasing Foreign Competition

A multinational company may not operate in all of thecountries in the world, choosing instead to operate and

even sell its goods and services in only certain parts of theworld.

This decision may be due to lack of interest in the productsor services in certain areas, the company's knowledge ofmarket conditions and cultural forces in certain parts of the

world. An international company may decide to purchase foreign

competition to overcome some of these challenges.


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Strategies for Diversification for

companies that are already

diversified.

-New Acquisition or Spin off

-Divest or Divestiture

-Corporate Restructuring or Turn around Strategy-Multi National, Multi Industry, Diversified Multi NationalCompany.


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Strategic Rationale

Divesting a subsidiary can achieve a variety of strategic objectives,such as:

Unlocking hidden valueEstablish a public market valuation forundervalued assets and create a pure-play entity that is transparentand easier to value

UndiversificationDivest non-core businesses and sharpen strategicfocus when direct sale to a strategic or financial buyer is either not

compelling or not possible

Institutional sponsorshipPromote equity research coverage andownership by sophisticated institutional investors, either of whichtend to validate SpinCo as a standalone business

Public currencyCreate a public currency for acquisitions andstock-based compensation programs


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Motivating management Improve performance by better

aligning management incentives with SpinCo's performance

(using SpinCo, rather than ParentCo, stock-based awards),

creating direct accountability to public shareholders, andincreasing transparency into management performance

Eliminating dissynergies Reduce bureaucracy and give

SpinCo management complete autonomy

Anti-trust Break up a business in response to anti-trust

concerns

Corporate defense Divest "crown jewel" assets to make a

hostile takeover of ParentCo less attractive


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Examples

A company can experience decreased financial

performance when its business portfolio is over-

diversified after a series of mergers and acquisitions.

When that occurs, managers might perform corporatedivestiture through sell-offs or spin-offs in order to

improve performance and restore focus on the companys

core business.


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Examples

Known more recently for its acquisitions IBM alsohas a reputation for spinning off commodity

businesses such as printers, PCs and notebooks andmore.

The company over the years has made the decision togo after high-value business with its middleware,

hardware and services offerings. This list goes fromthe early 1970s to 2009 and includes some of theinteresting partnerships IBM has had with AppleComputer in the early '90s.

Among Big Blue's most famous divestitures havebeen the spinoff of the IBM printer businesswhich became Lexmark.


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Definition of 'Divestiture

Divestitureis the reduction of some kindof asset for either financial or ethical

objectives or sale of an existing business

by a firm. A divestment is the opposite of

an investment.


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Motives for Divestitures

First, a firm may divest (sell) businesses that are not

part of its core operations so that it can focus on what

it does best. For example, Eastman Kodak, Ford

Motor Company, Future Group and manyother firms have sold various businesses that were not

closely related to their core businesses.


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A second motive for divestitures is to obtain funds.

Divestitures generate funds for the firm because it is

selling one of its businesses in exchange for cash. For

example, CSX Corporation made divestituresto focus on its core railroad business and also to

obtain funds so that it could pay off some of its

existing debt.


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A third motive for divesting is that a firm's "break-

up" value is sometimes believed to be greater than the

value of the firm as a whole. In other words, the sum

of a firm's individual asset liquidation values exceedsthe market value of the firm's combined assets. This

encourages firms to sell off what would be worth

more when liquidated than when retained.


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A fourth motive to divest a part of a firm may be to

create stability. Philips, for example, divested its chip

division called NXPbecause the chip market was so

volatile and unpredictable that NXP was responsiblefor the majority of Philips's stock fluctuations while it

represented only a very small part of Philips NV.


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A fifth motive for firms to divest a part of the

company is that a division is under-performing or

even failing.

A sixth reason to divest could be forced on to the firm

by the regulatory authorities, for example in order to

create competition.


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A seventh reason is pressure from shareholders for

social reasons (sometimes also called Disinvestment).

Historical example: there was a movement to divest

from companies who dealt with apartheid SouthAfrica, see Disinvestment from South Africa. Current

example: divestment from fossil fuels (similar

to boycott)


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How It Works/Example

Let's assume Company XYZ is the parent of a food

company, a car company, and a clothing company. If

for some reason Company XYZ wants out of the car

business, it might divest the business by selling it toanother company, exchanging it for another asset, or

closing down the car company.


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Why It Matters?

Optimists often look at divestitures as ways to

streamline (i.e., "get back to basics"), reduce debt,

and enhance shareholder value. Pessimists may view

them as concessions that the divested assets were notperforming well.


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5.Opportunies to use cross-businessor crosscountry subsidization to outcompete rivals.

6.Opportunities to transfer competitively valuable

resources from one business to another and from

one country to another.


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Strategies of Diversification for Already

Diversified companies


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1. Spin Off

The creation of an independent company through the saleor distribution of new shares of anexisting business/division of a parent company.

The process of splitting off certain parts of the companyand found them as separate independent businesses.

The shares of the new company are given to theshareholders of the existing company (on a pro rata basis).

The transfer of product knowledge and knowledge from theparent to the newly start up company is the mostimportant aspect


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Example:- Mannesmann-Vodafone

For example, a telecoms giant may takeover a smaller shortwave radio company, but thenspin off the company again so that it can continue to operate with its old brand in tact.

Possibly the most famous example of this in recent years was the Mannesmann-Vodafone

merger and the spin off of Orange.

Mannesmann was acquired by Vodafone Group Plc. in 2000 in a tax-free stock exchange of

53.7 Vodafone shares for each share of Mannesmann. This was a controversial takeover asnever before in Germany had a large company been acquired by a foreign owner. This was a

hostile takeover but the merger was backed in a private deal between Mannesmann

management and Vodafone.

Under the terms of the deal, Mannesmann sought assurances from Vodafone that

the Mannesmannbrand and name would be kept under the new owners.This was agreed andthe deal was announced. However, not long after this, Vodafone reneged on the deal and

rebranded.


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2. Divestiture

Disposition or sale of an asset by a company. A company will often divest an asset which is not

performing well, which is not vital to the company's corebusiness, or which is worth more to a potential buyer or asa separate entity than as part of the company.


New business line might not match with core businessactivity

To obtain funds To obtain stability

Not being competitive enough


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KFC, Pizza Hut and Taco Bell restaurant businessesare divested by PEPSICO Inc.

The fundamental reason behind this was that tofocus more on its core beverage and faster growingand more profitable Frito-Lay snack foodbusinesses.


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Examples:- Asian Paints

Asian Paints have restructured its manufacturingoperations into SBUs:-

Decorative India, Decorative International &

other made up of chemicals businesses alongwith industrial paints to ensure focus and greateraccountability.


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Example:- Tata Steel

Tata Steel had taken the services of 3international consultants namely McKinsey & Co,Arthur D Little and Booz Allen & Hamilton toenable it to become it globally competitive.

It sold of its cements division, had VRS &modernised its plants and thereafter became thelowest cost producer of steel in the world.


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OBJECTIVES OF CORPORATE RESTRUCTURING

Growth

Technology

Government policy

To reduce dependency on others

Economic stability


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4. Turnaround Management

Turnaround management is a processdedicated to corporate renewal. It usesanalysis and planning to save troubled

companies and returns them to solvency. Turnaround Management involves

management review, activity based costing,root failure causes analysis, and SWOT

analysis to determine why the company isfailing.

5 St t f M lti ti l


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5. Strategy of Multinational

Diversification

DIVERSITY of BUSINESSES &DIVERSITY of

NATIONAL MARKETS

Presents a big strategy-making challenge

Distinguishing Characteristic


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MULTI-NATIONAL DIVERSIFICATION: THE 1960s

Multi country approach

Management tasks at headquarters focused on

Finance functions

Technology transfer Export coordination

Primary competitive advantage of an MNC - Ability to transfercertain skills from country to country efficiently &cheaply

MNCs market position in a country negotiated with hostgovernment, not due to pressures of international competition


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Traditional MNCs driven to integrate operations

across national borders

Manufacturing a complete product range in each

country became less prevalent Gains in manufacturing efficiencies from converting

to world-scale plants more than offset increased

international shipping costs

In many industries, firms moved to locate plants in

low-wage countries to achieve labor cost savings


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Another source of competitive advantage emerged

Using strategic fit advantages of related diversification to

build a stronger global position

Often, being a DMNC was competitively superior toan MNC due to ECONOMIES OF SCOPE


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Example:- Adidas

Adidas adopted multinational diversification strategy Global expansion in the 1960's and '70's helped

adidas maintain its dominant status in the athletic

footwear market.

By the late 1970's adidas operated 24 factories in 17countries and was selling shoes in more than 150

nations.


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Diversified companies sometimes find it desirable to build

positions in new related or unrelated industries, because the

companys growth is sluggish.

It needs the revenue and profits boost of a newly acquired

business.

Making new acquisitions to broaden a companys

diversification base can become close to imperative when

rapidly changing conditions in one of a companys core

industries are blurring the boundaries with adjoining

industries.


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New acquisition of Apple

The Apple made its first acquisition on March 2, 1988 when it

purchased Network Innovations.

Apple acquiredEmagic, and its professional music software, Logic

Pro, in 2002.

The acquisition led to the creation of the digital audio workstation

software, GarageBand , now part of the iLife software suite.


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Divestiture

A divestiture or divestment is the reduction of an asset or

business through sale, liquidation, exchange, closure or any

other means for financial or ethical reasons.

It is the opposite of investment.

Divestiture usually takes one of two forms:

i) spinning a business off as an independent company or

ii) selling in it to another company.


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A number of highly diversified firms have had difficulty managing

broad diversification and have elected to divest certain of their

businesses to focus their total attention and resources on a lesser

number of core businesses.


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Misys Computer Maintenance

SCI Systems

Al-Waleed bin Talal

Grupo Carso
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It is a

remedy for

curing

industrial

sickness.
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Type : Public limited

Founded : 7thmay,1946

Headquarter : Minato,Tokyo,JAPAN

Products : Consumer electronics

Semiconductors

Video games

Media/Entertainment

Computer hardware

Telecom equipment


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Sony corpsnew CEO, KAZUO HIRAI promised his turnaround strategywill save Japans troubled consumer electronics giant`

Sony has since been progressively implementing various structural

reform measures to optimize costs, streamline its overall organization,accelerate decision-making processes and establish firm foundationsfor sustainable future growth.

1) One Sony rescue plan


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It was designed to unite the many disparate arms of theconglomerate, shed 10000 job sand make cost savings whereverit could. Facilities in Sweden and the UK have already beenclosed, so now the company is shifting focus to its operations in

Japan.

Under the plan, Sony Computer Entertainment, Sony NetworkEntertainment, and Home Entertainment & Sound divisions willhave to report directly to CEO Kaz Hirai, who formerally headedonly Sony Computer Entertainment.

2) Digital imaging business


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The manufacture of interchangeable lenses andlens blocks currently being conducted at Sony EMCS Corp.'sMinokamo Site will be absorbed by EMCS Corp.'s Kohda Site.

With production being moved to factories in Kohda and Kisarazu,840 staff will lose their jobs.

As Sony concentrates its mobile phone business on the area ofsmartphones, the operations currently being carried out at theMinokamo Site relating to mobile phones will be partially discontinuedand partially transferred to Sony EMCS Corp.'s Kisarazu Site.

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3) EARLY RETIREMENT PROGRAMME


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To ptimize personnel structure and assist employees to secure newopportunities outside the Company this programs implemented.

It expected to result in headcount reduction ofapprox. 2,000 employees by the end of FY12, with approx.half of the reductions (1,000 employees) expected to be in supportfunctions, including the headquarters of Sony.

This plan lead to a headcount reduction of approximately 20% at atSony's headquarters operations

3) EARLY RETIREMENT PROGRAMME

4)REDUCE TELEVISION SALES


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Sony has biggest financial loss of $6.4 billion;

Sonys shares have fallen 40 per cent in asingle year.

The company, once known for its quality TVs, is cutting saleprojections for television sets in half, from 40 million to 20 million.

Focusing less on its TV business and refocusing on its moresuccessful businesses, such as mobile phones, video games, and

small digital imaging devices.

But much of the focus seems to be hedging on the profitability of thePS3, Vita and PSN, their video games systems and services.

4)REDUCE TELEVISION SALES


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Diversified Multinational

Company


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.


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Uniliver ka Sooraj kabhi Dhaltanahi


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Serving Around the world gives Uniliver Economiesof Scales as well as Economies of Scope.

Uniliver were been Pioneering in many of countries

in Consumer goods industry which gave themmonopoly Advantage.

Operating through merger & Acquisitions gives

uniliver Strength to increase Robust share in the

Market.


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Most Actively Managed ProductBrand Portfolio

We were We are

Reported As on 1st

May, 2009


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From long-established names like Lifebuoy, Sunlightand Ponds to new innovations such as the Pure it

affordable water purifier,its range of brands is asdiverse as its worldwide consumer base.

Thus , it attracts Varieties of Demographic featuresof a Consumers.

Uniliver invest 1 % of sales in Research &Development which gave them gaining own Product.


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CSR : An Emotional Appeal too..


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S C O O O S


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DIVERSIFICATION OPTIONS

FOR SINGLE

BUSINESSES

WHICH WANT TO START

FOR COMPANIES WHICH

ARE ALREADYDIVERSIFIED

FOR NEW BUSINESS


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FOR NEW BUSINESS

1) INTERNAL1) INTERNAL START UP

2) EXTERNAL

1) JOINT VENTURE/STRATEGICALLIANCES/MERGERS

2) ACQUISITIONS

INTERNAL START UPS


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INTERNAL START-UPS

SUITABLE WHEN-

PARENT FIRMS ARE RICH IN RESOURCES FOR

STARTING NEW FIRNS.

WHEN ENOUGH TIME TO LAUNCH THE NEW

PRODUCT IS AVAILABLE.WHEN ENTRY COST < ACQUISITION COST

WHEN COMPETITION FROM EXISTING FIRMS IS

LESS/NOT VERY AGRESSIVE

WHEN LOW ENTRY BARRIERS

IN-HOUSE MANAGERIAL TALENT ALREADY

AVAILABLE.


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VIA ACQUISTIONS/MERGERS/JV/ALLAINCES

Conditionsmaking this approach attractive

Slow grow in current businesses

Vulnerability to seasonal or recessionary influences or tothreats from emerging new technologies

Potential to transfer resources and capabilities to otherrelated businesses

Rapidly-changing conditions in one or more coreindustries alter buyer requirements

Complement and strengthen market position of one or

more current businesses


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Strategic options

Retrenchment

Divestiture

Sell it

Spin it off as independent company

Liquidate it (close it down because no buyers

can be found


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Objective

Reduce scope of diversification to smaller

number of core businesses

Strategic optionsinvolve divestingbusinesses

Having little strategic fit with core businesses

Too small to contribute to earnings


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Diversification efforts have become too broad,resulting in difficulties in profitably managing allthe businesses

Deteriorating market conditions in a once-

attractive industry

Lack of strategic or resource fit of a business

A business is a cash hog with questionable long-

term potential A business is weakly positioned in its industry

Businesses that turn out to be misfits

One or more businesses lack compatibility of


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Sell it

Involves finding a company which views the business

as a good deal and good fit

Spin it offas independent company

Involves deciding whether or not to retain partial

ownership

Liquidation

Involves closing down operations and selling

remaining assets


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Objective

Make radical changes in mix

of businesses in portfolio via both Divestitures and

New acquisitions

in order to put on whole new face on the

companys

business makeup


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Too many businesses in unattractive industries Too many competitively weak businesses

Ongoing declines in market shares of one or more

major business units Excessive debt load

Ill-chosen acquisitions performing worse than

expected New technologies threaten survival of one or

more core businesses

Appointment of new CEO who decides to redirect


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Distinguishing characteristic

Diversityof businessesand diversityof national

markets

Presents a bigstrategy-making challenge

Strategies must be conceived and executed for

each business, with as many multinational

variations as a ro riate


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Offer two avenues for long-term growthinrevenuesandprofits

Enter additional businesses

Extend operations of existing businesses into

additional country markets


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Full capture of economies of scaleand experience curve effects

Capitalize on cross-business economies of

scope Transfer competitively valuable resources from

one business to another and from one countryto another

Leverage use of a competitivelypowerful brand name

Coordinate strategic activities and

initiatives across businesses and countries


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Competitive advantagepotential is based on

Using a related diversification strategybased on

Resource-sharing and resource-transferopportunities among businesses

Economies of scope and brand namebenefits

Managing related businesses to capture importantcross-business strategic fits

Using cross-market or cross-business subsidizationsparingly to secure footholds in attractive country


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Documents

Aleady Diversifed Options1